Hangzhou the capital of technology shows the way to China's new economy

HANGZHOU, China; Home to electronics manufacturing companies and makers of household appliances, Zhejiang's transformation is an exemplar of Chinese leaders' vision of an economy powered less by exports and investment and more by services and advanced industry, as embodied in the country's "Made in China 2025" strategy published on Tuesday.

In Hangzhou, a city of 8 million people just an hour's train ride from Shanghai, local authorities have long allowed private enterprise to flourish. Zhejiang province, which accounted for 6.3 percent of China's economy last year, is benefiting from reforms being rolled out across China, such as tax breaks for high-tech firms, more funding for internet start-ups, and a better logistics network to aid e-commerce.

From venture capital funds to big data firms, hundreds of technology-linked companies have set up shop in the eastern coastal city of Hangzhou, capital of Zhejiang province, to create a thriving services centre that is picking up the slack from wilting factory growth.

A case in point, Kuaidi Dache, part of China's biggest taxi-hailing app, employs close to 2,000 workers today, compared with fewer than 10 just three years ago. “Kuaidi was founded in Hangzhou, which has a very open economy and is very receptive to new technologies" said Zhao Dong, Kuaidi's co-founder and chief operating officer.

Growth in Zhejiang accelerated to 8.2 percent in the first quarter of this year, up from 7 percent a year earlier, while growth in the rest of China slipped to 7 percent, a quarterly low not seen since the depths of the 2008/09 global financial crisis.

Birthplace of e-commerce giant Alibaba Group

The company, which earned annual revenues of 76.2 billion yuan ($12.3 billion) in its last financial year, and hired nearly 13,000 employees in the year since March 2014. "There's a whole ecosystem that has developed around Alibaba," said Jin Zhongkun, co-founder of Loafer's Weekend, a Hangzhou events app that promotes activities to subscribers. "It used to be that Zhejiang was supported by small and medium-sized enterprises that focused on exports, but now you see a lot of really good venture capital firms."

For Liu Yang, a deputy manager at Hangzhou Efuton Tea Co Ltd, one of China's top online tea sellers, Hangzhou's pro-business environment is a model for the rest of China. Companies here receive "enormous" state support, Liu said. Entrepreneurs get housing subsidies, and companies are invited to networking and industrial design events run by the government. Liu had just returned from a local-government-led tour of Haier Group, China's biggest household appliance maker, in Qingdao, eastern China. "This is a government that helps companies," Liu said. Official figures reflect the reshaping of Zhejiang's economy.

Investment in its services sector jumped 33.3 percent in the first three months of the year, far outstripping a 5.8 percent rise in factory investment. Investment in the communications, software and IT industries was particularly buoyant, soaring 138.5 percent, compared with spending cuts in some factories. Investment in ferrous metal smelting fell 23.6 percent.

That is altering perceptions among young Hangzhou residents, said Cai Jingyan, a spokeswoman at Kuaidi. Many now aspire to work for Chinese internet firms instead of multinational corporations and state-owned giants such as Hangzhou Iron and Steel Group, known as Hanggang. “There's a popular saying in Hangzhou: back in the day, girls wanted to marry boys who worked at Hanggang. But now they want to marry boys who work at Alibaba," Cai said.

(Reuters, reporting by John Ruwitch in SHANGHAI; Writing by Koh Gui Qing in BEIJING)